Stock Market Volatility

ISDS 361A Computer Project 1

(Use MS Excel and MS Word)

Total Points = 100

Reference to problem #3.89 in your text book concerning the Dow Jones Industrial Average Index vs. the Unemployment Rate.

Use Excel Data File Xr03-89.

Use a graphical technique (Frequency Histogram) to present the DJIA closed.

Use a graphical technique (Frequency Histogram) to present the Unemployment Rate.

Find the mean and median of DJIA closed and of Unemployment rate

	DJIA	UNEMPLOYMENT
MEAN	3222.12	5.68
MEDIAN	952.83	5.6

Find the standard deviations of both samples

	DJIA	UNEMPLOYMENT
STANDARD DEVIATION	3840.15	1.56

Discuss the “Skewness” in the distributions of both from 1999 to 2009 (10 years)

1999 to 2009 (10years)
DJIA
Bin	Bin	Frequency
7921.32	7921.315	4
8779.70	8779.7	12
9638.09	9638.085	14
10496.47	10496.47	38
11354.86	11354.855	37
12213.24	12213.24	7
13071.63	13071.625	11
13930.01	13930.01	8
More	0

Unemployment
Bin	Bin	Frequency
4.6	4.6	41
5.4	5.4	31
6.2	6.2	40
7	7	6
7.8	7.8	2
8.6	8.6	2
9.4	9.4	3
10.2	10.2	6
More	0

The skewness represent that economic growth and unemployment rate have inverse relationship. As the economy gets increase, unemployment rate decreases.

find the estimated average Z _(Alpha/2) of DJIA sample data base on the 10 years in part e), (assuming a 95% confidence level is required).

1999 to 2009 (10 years)
DJIA
Highest Observation	13930.01
Lowest Observation	7062.93
n	132
# of Classes	7.997893973
round up	8
Class Width	858.39
Mean	10467.16727
SD	1399.016023
alpha	0.05
alpha/2	0.025
-1.95996398

Unemployment
Highest Observation		10.2
Lowest Observation		3.8
n	132
# of Classes		7.997894
round up	8
Class Width		0.8
Mean	5.421212
SD	1.43069

find the lower confidence limit, and find upper confidence limit for this estimated average

DJIA
LCL	10228.50059	=F106-G112*(F107/SQRT(132))
UCL	10705.83395	=F106+G112*(F107/SQRT(132))

Unemployment
LCL	5.177142	=J106-G112*(J107/SQRT(132))
UCL	5.665282	=J106+G112*(J107/SQRT(132))

Write a discussion paper on what interpretation or conclusions you could draw about the US economy based on your understanding of historical information from the above part a) through part e).

In spite of growth in job opportunities, based on the figures unemployment levels still went ups. For instance, the results show that with unemployment mean of 5.68 over the last ten years it is accompanied by 3222.12 DJIA. On the other hand, low media of 952.83 DJIA is associated with unemployment median of 5.6. The graphs indicate how the federal expectations sare way below in terms of curtailing inflation which then leads to high unemployment rates. Imperatively, year after year inflation has been eating on the economic well being of United States. For instance, when DJIA had a mean of 3222.12 unemployment was at 5.68. What this literally means is that DJIA was running into a fiscal slump and as a corporate entity was unable to create jobs. Being unable to support itself DJIA had to close down. At 10.2 for instance, employment was at it highest. The center column in the bar chart demonstrates the variation in the DJIA Index return rate over a given time frame, based on whether this period experienced in upward trend or a downward trend in unemployment rate (McGrattan et al. 781-836). On the other hand, the right column demonstrates the change in DJIA market Index throughout out the years in terms of whether or not there was an increase in the rate of unemployment. In the central column, data indicates a strong tendency between these two variables that are likely to move towards the same end within a similar time period presented. The indication for reviewing a twelve month change based on previous performances, when it comes to the unemployment rate to forecast the future trend of the DJIA stock market volatility is strong on the right column. These data has one function; it’s economic in nature and sets out to determine whether or not an association exists between DJIA stock market return index and the rate of unemployment relative to long term ventures. This chronological account presents a necessary means when it comes to reviewing and interpreting some of the trends uncertain with stock markets, particularly DJIA in this scenario. The position any stock market pundits get may somehow be completely different between staying focused with investment and resisting the fleeting confusion that comes with every venture concept and the volatility of financial markets. By and large the statistics presented in this paper tend to inform any wannabe investor on the performance of the market and allow them make informed decision on whether or not to make investments, in the event that unemployment rate and the DJIA stock market happens to move in a particular direction (McGrattan et al. 781-836). For instance, the recent unemployment rates, which are rocking high tells any investor or student of economic about the future of the stock market, which based on the statistics is not promising. The statistical history and graphical tabulation indicate simply indicate how DJIA is performing. The uncertainties of the market have also demonstrated a scenario where inflation becomes modest with stagnant wages. It therefore becomes an irony that while inflation impacts negatively on the livelihoods of the consumer worlds, employers have not augmented their paychecks. A number of analysts attempt to forecast financial information to indicate the relationship aspect via statistical as well as mathematical models. The commonly used information is DJIA. Several years when DJIA was uncovered, the aspect of stock market was not greatly considered. Stocks were predicted based on uncertain views since concrete data was not available. Currently, nevertheless, financial analysts allege that industrial average heavily relies on concrete information and economic conditions. The stock market is extremely unstable. The DJIA seems to rely on economic and political rumors. Variety of this economic and political volatility is very irregular and thus predicting DJIA and financial market tends to be challenging. This paper focuses on unemployment rates using DJIA for a period of ten years from 1990 to 1999. This will help minimize numerous short term volatilities. Additionally, choosing ten years helps to eliminate the possibilities of inaccuracies because financial information is gathered and evaluated differently in the initial years of a century compared to present days. All the information in this paper is estimated by adding the closing price. The estimated averages are then used to show the annual DJIA. With the yearly averages then is becomes easier to considerably minimize the temporary financial fluctuations as well as index instability as result of short term rumors. The objective of this paper is to present the relationship between unemployment rate and DJIA for a period of ten years (McGrattan et al. 781-836). United States implements numerous financial policies as well as programs that serve as regular stabilizers in the financial system, this implies that the government expenditure increases or taxes decrease automatically with no legislative measure when the gross domestic product (GDP) reduces. Some of these programs are unemployment, health insurance, taxes and so forth. Additionally, this implies that deficit in the government seems to increase during recession and decrease in booms. Because DJIA mean is higher than unemployment rate, the federal deficit increases. In other words, DJIA should increase in booms and decrease during recession. This is likely to be true with regards to unemployment as its likely to increase during recession and drop when the economy is stable (McGrattan et al. 781-836).

Works Cited

Chari.V.V & Patrick J. Kehoe & Ellen R. McGrattan. “Business Cycle Accounting,” Econometrica, Econometric Society, vol. 75(3), 2013, pages 781-836.